What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2024-02-07 · 172 added, 115 removed, 257 unchanged (53% of the section changed)

55 unchanged sentences

Such segments are organized by the differing specialized needs of the respective clients and how we manage the business.

We have aggregated various operating segments into our reportable segments based on their similar

characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

We have aggregated operating segments into our Americas and International reportable segments based on their similar characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

Planning, consulting, architectural and engineering design, construction management and program management services to public and private clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.

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In November 2023, the Board approved an increase in our stock repurchase authorization to $1.0 billion.

At December 31, 2023, we have approximately $950.0 million remaining of the Board’s repurchase authorization.

At March 31, 2024, we have approximately $928.9 million remaining of the Board’s repurchase authorization.

We intend to deploy future available cash towards dividends and stock repurchases consistent with our return driven capital allocation policy.

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As part of our ongoing plan to improve profitability and maintain a reduced risk profile, we continuously evaluate our geographic exposure.

In fiscal year 2023, we announced that we had initiated a process to explore strategic options for the AECOM Capital business.

This process is consistent with our focus on our professional services business.

AECOM Capital will continue to support existing investment vehicles and investments in a manner consistent with their current obligations.

We have conducted a project-by-project review of the existing investment portfolio, including an analysis of the incremental cash requirements that might be required to carry the investments on our balance sheet if the current market conditions persist.

We determined that the incremental investments to these assets did not meet the objectives of our capital allocation policy.

We reflected this change in strategy and the expected acceleration of these investment exits as an impairment charge of $307.0 million in the third quarter of fiscal 2023 and $35.9 million in the first quarter of fiscal 2024.

This impairment did not relate to investments in respect of which affiliates of AECOM Capital provide advisory services or manage third party capital.

We expect to incur restructuring costs of approximately $50 million to $70 million in fiscal 2024, primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies.

Consistent with our focus on our professional services business, we previously announced that we initiated a process to explore strategic options for the AECOM Capital business.

Following the end of the second quarter of fiscal year 2024, we completed a transaction that transitioned the AECOM Capital team to a new platform.

The team will continue to support AECOM Capital’s investment vehicles in a manner consistent with their current obligations.

We expect to incur restructuring costs of approximately $50 million to $70 million in fiscal 2024, primarily related to ongoing actions that are expected to deliver continued efficiencies and margin improvement.

Our estimated restructuring costs include the ongoing optimization of our office real estate portfolio and exit of certain countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.

Results of Operations

Three months ended December 31, 2023 compared to the three months ended December 31, 2022

Three and six months ended March 31, 2024 compared to the three and six months ended March 31, 2023

Consolidated Results

Three Months Ended

Six Months Ended

($ in millions)

Cost of revenue

Equity in (losses) earnings of joint ventures

Equity in earnings (losses) of joint ventures

General and administrative expenses

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Net income attributable to noncontrolling interests from continuing operations

Net (loss) income attributable to noncontrolling interests from discontinued operations

Net (income) loss attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net (loss) income attributable to AECOM from discontinued operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

1 unchanged sentence

Three Months Ended

Six Months Ended

Cost of revenue

Equity in (losses) earnings of joint ventures

Equity in earnings (losses) of joint ventures

General and administrative expenses

8 unchanged sentences

Net income attributable to noncontrolling interests from continuing operations

Net (loss) income attributable to noncontrolling interests from discontinued operations

Net (income) loss attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net (loss) income attributable to AECOM from discontinued operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

Our revenue for the three months ended December 31, 2023 increased $517.5 million, or 15.3%, to $3,899.9 million as compared to $3,382.4 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily attributable to increases in revenues in both our Americas and International segments of $459.4 million and $58.2 million, respectively, as discussed further below.

Our revenue for the three months ended March 31, 2024 increased $453.8 million, or 13.0%, to $3,943.9 million as compared to $3,490.1 million for the corresponding period last year.

Our revenue for the six months ended March 31, 2024 increased $971.3 million, or 14.1%, to $7,843.8 million as compared to $6,872.5 million for the corresponding period last year.

Revenue increased across most of our end markets as a result of increased investment in infrastructure, sustainability and resilience, and energy transition driven by large, publicly financed, global infrastructure programs including the Infrastructure Investment and Jobs Act in the U.S.

and similar large programs in our largest end markets globally.

Our Water end market has been benefiting from increased investment to address drought, flooding, and drinking water scarcity.

Our Transportation end market has been benefitting from incremental surface and transit investments across the globe, while our Environment end market has been benefiting from infrastructure that requires permitting and compliance, as well as investments in new energy.

Our Facilities end market has been benefiting from positive trends in decarbonization and green design.

The quantification of the impact of these trends by end market is noted within our Americas and International reportable segments discussion below, where applicable, and represents substantially all of our revenue change.

In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients.

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Because these pass-through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Pass-through revenues for the quarters ended December 31, 2023 and 2022 were $2.2 billion and $1.8 billion, respectively.

Pass-through revenue as a percentage of revenue was 56% and 53% during the three months ended December 31, 2023 and 2022, respectively.

Our gross profit for the three months ended December 31, 2023 increased $29.0 million, or 13.5%, to $244.0 million as compared to $215.0 million for the corresponding period last year.

For the three months ended December 31, 2023, gross profit, as a percentage of revenue, decreased to 6.3% from 6.4% in the corresponding period last year.

Pass-through revenues for the quarters ended March 31, 2024 and 2023 were $2.1 billion and $1.8 billion, respectively.

Pass-through revenues for the six months ended March 31, 2024 and 2023 were $4.3 billion and $3.6 billion, respectively.

Pass-through revenue as a percentage of revenue was 54% and 52% during the three months ended March 31, 2024 and 2023, respectively.

Pass-through revenue as a percentage of revenue was 55% and 52% during the six months ended March 31, 2024 and 2023, respectively.

Cost of Revenue

Our cost of revenue increased to $3,682.8 million for the three months ended March 31, 2024 compared to $3,262.0 million for the corresponding period last year, an increase of $420.8 million, or 12.9%.

Our cost of revenue increased to $7,338.7 million for the six months ended March 31, 2024 compared to $6,429.4 million in for the corresponding period last year, an increase of $909.3 million, or 14.1%.

Substantially all of the change in our cost of revenue for the three and six months ended March 31, 2024 occurred in our Americas and International reportable segments, which is discussed in more detail below.

Our gross profit for the three months ended March 31, 2024 increased $33.0 million, or 14.5%, to $261.1 million as compared to $228.1 million for the corresponding period last year.

For the three months ended March 31, 2024, gross profit, as a percentage of revenue, increased to 6.6% from 6.5% in the corresponding period last year.

Our gross profit for the six months ended March 31, 2024 increased $62.0 million, or 14.0%, to $505.1 million as compared to $443.1 million for the corresponding period last year.

For the six months ended March 31, 2024, gross profit, as a percentage of revenue, remained unchanged from 6.4% in the corresponding period last year.

Gross profit changes were due to the reasons noted in Americas and International reportable segments below.

Equity in (Losses) Earnings of Joint Ventures

Our equity in losses of joint ventures for the three months ended December 31, 2023 was $29.0 million as compared to equity in earnings of $9.8 million in the corresponding period last year.

The decrease in earnings of joint ventures for the three months ended December 31, 2023 compared to the same period in the prior year was primarily due to losses recorded by our AECOM Capital segment in fiscal 2024 compared to earnings in fiscal 2023.

These impairments were primarily as a result of continued volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended March 31, 2024 was $19.5 million as compared to $7.5 million in the corresponding period last year.

The increase in equity earnings was primarily due to a favorable close out of an AECOM Capital investment.

Our equity in losses of joint ventures for the six months ended March 31, 2024 was $9.5 million as compared to equity in earnings of $17.3 million in the corresponding period last year.

The increase in equity losses of joint ventures was primarily due to impairment losses recorded by our AECOM Capital segment in fiscal year 2024 as a result of continued volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

General and Administrative Expenses

Our general and administrative expenses for the three months ended December 31, 2023 increased $0.1 million, or 0.3%, to $35.7 million as compared to $35.6 million for the corresponding period last year.

For the three months ended December 31, 2023, general and administrative expenses, as a percentage of revenue, was 1.0% as compared to 1.1% in the corresponding period last year.

Our general and administrative expenses for the three months ended March 31, 2024 increased $10.5 million, or 30.7%, to $44.7 million as compared to $34.2 million for the corresponding period last year.

For the three months ended March 31, 2024, general and administrative expenses, as a percentage of revenue, was 1.1% as compared to 0.9% in the corresponding period last year.

Our general and administrative expenses for the six months ended March 31, 2024 increased $10.6 million, or 15.2%, to $80.4 million as compared to $69.8 million for the corresponding period last year.

For the six months ended March 31, 2024, general and administrative expenses, as a percentage of revenue, remain unchanged at 1.0% from the corresponding period last year.

The increase in general and administrative expenses for the three and six months ended March 31, 2024 compared to the comparable period in the prior year was primarily due to nonrecurring expenses in the AECOM Capital reportable segment.

Restructuring Costs

Restructuring expenses are comprised of personnel costs, real estate costs, and costs associated with business exits.

During the three months ended December 31, 2023, we incurred total restructuring expenses of $16.2 million, primarily related to actions taken to align our real estate portfolio with our employee flexibility initiatives and costs incurred associated with the ongoing exit of certain countries in Southeast Asia.

During the three months ended December 31, 2022, we incurred restructuring expenses of $37.5 million, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

Our other income for the three months ended December 31, 2023 increased to $2.6 million from $2.1 million for the corresponding period last year.

During the three and six months ended March 31, 2024, we incurred total restructuring expenses of $35.4 million and $51.6 million, respectively, primarily related to costs incurred to align our real estate portfolio with our employee flexibility initiatives, continue our exit of certain countries in Southeast Asia, drive support function efficiency, and reduce our risk profile.

During the three and six months ended March 31, 2023, we incurred total restructuring expenses of $3.9 million and $41.4 million, respectively, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

Our other income for the three months ended March 31, 2024 increased to $2.6 million from $2.5 million for the corresponding period last year.

Our other income for the six months ended March 31, 2024 increased to $5.2 million from $4.6 million for the corresponding period last year.

Interest Income

Our interest income for the three months ended December 31, 2023 increased to $12.1 million from $5.8 million for the corresponding period last year.

The increase in interest income for the three months ended December 31, 2023 was primarily due to an increase in interest rates on our interest-bearing assets.

Our interest income for the three months ended March 31, 2024 increased to $15.4 million from $9.8 million for the corresponding period last year.

Our interest income for the six months ended March 31, 2024 increased to $27.5 million from $15.6 million for the corresponding period last year.

The increases in interest income for the three and six months ended March 31, 2024 were primarily due to an increase in interest rates on our interest-bearing assets.

Interest Expense

Our interest expense for the three months ended December 31, 2023 was $41.3 million as compared to $36.7 million for the corresponding period last year.

The increase in interest expense for the three months ended December 31, 2023 was primarily due to an increase in interest rates on the variable component of our debt.

Our interest expense for the three months ended March 31, 2024 was $47.7 million as compared to $42.4 million for the corresponding period last year.

Our interest expense for the six months ended March 31, 2024 was $89.0 million as compared to $79.1 million for the corresponding period last year.

The increases in interest expense for the three and six months ended March 31, 2024 were primarily due to an increase in interest rates on the variable component of our debt.

Income Tax Expense

Our income tax expense for the three months ended December 31, 2023 was $26.6 million as compared to $25.8 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impact of an increase in pre-tax income of $13.6 million, a tax benefit of $6.9 million related to an audit settlement, an increase in tax benefit of $4.4 million related to income tax credits and incentives, an increase in tax expense of $3.4 million related to changes in valuation allowances, an increase in tax expense of $2.8 million related to foreign residual income, and an increase in tax expense of $2.8 million related to excess tax benefits.

Our income tax expense for the three months ended March 31, 2024 was $45.4 million as compared to $41.1 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to an increase in tax expense of $4.4 million related to foreign residual income, an increase in tax expense of $2.0 million related to state income taxes, and an increase in tax benefit of $1.4 million related to income tax credits and incentives.

Our income tax expense for the six months ended March 31, 2024 was $72.0 million as compared to $66.9 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impact of an increase in pre-tax income of $17.0 million, a tax benefit of $6.9 million related to an audit settlement, an increase in tax expense of $7.2 million related to foreign residual income, an increase in tax benefit of $5.8 million related to income tax credits and incentives, an increase in tax expense of $3.3 million related to state income taxes, and an increase in tax expense of $2.9 million related to excess tax benefits.

During the three months ended December 31, 2023, the Company settled its tax audit in Hong Kong for fiscal year 2011 through fiscal year 2021 and recorded a tax benefit of $6.9 million due primarily to changes in uncertain tax positions.

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As a result of these strategic actions, the self-perform at-risk construction businesses were classified as discontinued operations.

Net loss from discontinued operations was $1.3 million for the three months ended December 31, 2023 and was $0.4 million for the three months ended December 31, 2022, an increase of $0.9 million.

Net loss from discontinued operations was $109.4 million for the three months ended March 31, 2024 and was $41.8 million for the three months ended March 31, 2023, an increase of $67.6 million.

Net loss from discontinued operations was $110.7 million for the six months ended March 31, 2024 and was $42.2 million for the six months ended March 31, 2023, an increase of $68.5 million.

The increase in net loss from discontinued operations was primarily due to revisions of estimated contingent consideration related to the sale of our civil infrastructure construction business.

Net Income Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $94.4 million for the three months ended December 31, 2023 as compared to net income attributable to AECOM of $87.9 million for the three months ended December 31, 2022.

The factors described above resulted in net income attributable to AECOM of $1.0 million and $95.4 million for the three and six months ended March 31, 2024 as compared to net income attributable to AECOM of $76.7 million and $164.6 million for the three and six months ended March 31, 2023.

Results of Operations by Reportable Segment

Three Months Ended

Six Months Ended

($ in millions)

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Three Months Ended

Six Months Ended

Cost of revenue

Revenue for our Americas segment for the three months ended December 31, 2023 increased $459.4 million, or 17.8%, to $3,038.7 million as compared to $2,579.3 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily driven by increased project activity in the Americas design business including growth in the Water, Transportation, and Program Management businesses .

Gross profit for our Americas segment for the three months ended December 31, 2023 increased $8.1 million, or 5.0%, to $171.0 million as compared to $162.9 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 5.6% of revenue for the three months ended December 31, 2023 from 6.3% in the corresponding period last year due to an increase in pass - through revenues of $405.4 million.

The increase in gross profit for the three months ended December 31, 2023 was primarily due to revenue growth, particularly underlying revenue excluding pass - through revenue, strength across the Company’s Water, Transportation, and Program Management end markets and the benefits of actions taken to accelerate the realization of the Company’s long-term margin potential.

Revenue for our Americas segment for the three months ended March 31, 2024 increased $408.4 million, or 15.5%, to $3,038.6 million as compared to $2,630.2 million for the corresponding period last year.

The increase in revenue for the three months ended March 31, 2024 was driven by organic growth and an increase in pass-through revenues of $310.8 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from increased project activity in the Americas, including growth in our Water end market of $21.8 million, growth in our Transportation end market of $75.8 million, and growth in our Environment end market of $51.4 million compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our Americas segment for the six months ended March 31, 2024 increased $867.8 million, or 16.7%, to $6,077.3 million as compared to $5,209.5 million for the corresponding period last year.

The increase in revenue for the six months ended March 31, 2024 was driven by organic growth and an increase in pass-through revenues of $716.2 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from increased project activity in the Americas, including growth in our Water end market of $57.5 million, growth in our Transportation end market of $124.5 million, and growth in our Environment end market of $62.7 million compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2024 increased by $397.3 million, or 16.2%, to $2,854.2 million compared to $2,456.9 million for the corresponding period last year.

Cost of revenue for the six months ended March 31, 2024 increased by $848.6 million, or 17.4%, to $5,721.9 million compared to $4,873.3 million for the corresponding period last year.

The increases in cost of revenue for the three and six months ended March 31, 2024 were consistent with the increases in revenue.

The increases in cost of revenue for the three and six months ended March 31, 2024 were due to an increase in subcontractor and other direct costs of $310.8 million and $716.2 million, respectively, due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients, with the balance of the increases due to higher labor costs compared to the same periods in the prior year.

Gross profit for our Americas segment for the three months ended March 31, 2024 increased $11.1 million, or 6.4%, to $184.4 million as compared to $173.3 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.1% of revenue for the three months ended March 31, 2024 from 6.6% in the corresponding period last year.

Gross profit for our Americas segment for the six months ended March 31, 2024 increased $19.2 million, or 5.7%, to $355.4 million as compared to $336.2 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 5.8% of revenue for the six months ended March 31, 2024 from 6.5% in the corresponding period last year.

The increases in gross profit for the three and six months ended March 31, 2024 were primarily due to revenue growth and execution efficiencies realized from restructuring actions.

In addition, underlying revenue, excluding pass-through revenues, increased as noted above.

The decrease in gross profit as a percentage of revenue was due to an increase in pass-through revenues for the three and six months ended March 31, 2024 as compared to last year.

International

Three Months Ended

Six Months Ended

($ in millions)

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Three Months Ended

Six Months Ended

Cost of revenue

Revenue for our International segment for the three months ended December 31, 2023 increased $58.2 million, or 7.2%, to $861.0 million as compared to $802.8 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily due to growth in the United Kingdom, Middle East and Australia compared to the prior year.

Growth was led by the Transportation, Facilities, and Water markets.

Gross profit for our International segment for the three months ended December 31, 2023 increased $21.0 million, or 40.5%, to $72.8 million as compared to $51.8 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.5% of revenue for the three months ended December 31, 2023 from 6.5% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the three months ended December 31, 2023 was primarily due to an increase in revenue and reduced costs resulting from ongoing country exits, growing usage of enterprise capability centers and shared service centers, and delivery efficiency.

Revenue for our International segment for the three months ended March 31, 2024 increased $45.0 million, or 5.2%, to $904.8 million as compared to $859.8 million for the corresponding period last year.

The increase in revenue for the three months ended March 31, 2024 was primarily due to increased growth in Middle East of $46.9 million, partially offset by a decrease in Asia of $3.8 million compared to the corresponding period last year.

Growth was led by our Transportation, Facilities, and Environment end markets, which increased $8.5 million, $25.8 million, and $7.4 million, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our International segment for the six months ended March 31, 2024 increased $103.2 million, or 6.2%, to $1,765.8 million as compared to $1,662.6 million for the corresponding period last year.

The increase in revenue for the six months ended March 31, 2024 was primarily due to increased growth in Europe of $61.8 million and Middle East of $43.1 million compared to the corresponding period last year.

Growth was led by our Transportation, Facilities, and Environment end markets, which increased $19.7 million, $49.7 million, and $21.1 million, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2024 increased $23.5 million, or 2.9%, to $828.6 million as compared to $805.1 million for the corresponding period last year.

The increase in cost of revenue for the three months ended March 31, 2024 was due to an increase in labor expenses of $21.3 million.

Headcount growth in other regions was offset by a 40% headcount decrease in Mainland China compared with the corresponding period last year.

Cost of revenue for the six months ended March 31, 2024 increased $60.7 million, or 3.9%, to $1,616.8 million as compared to $1,556.1 million for the corresponding period last year.

The increase in cost of revenue for the six months ended March 31, 2024 was due to an increase in labor expenses of $61.3 million.

Headcount growth in other regions was offset by a 40% headcount decrease in Mainland China compared to the corresponding period last year.

Cost of revenue for the three and six months ended March 31, 2024 decreased as a percentage of revenue compared to the same periods in the prior year.

Gross profit for our International segment for the three months ended March 31, 2024 increased $21.5 million, or 39.3%, to $76.2 million as compared to $54.7 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.4% of revenue for the three months ended March 31, 2024 from 6.4% in the corresponding period last year.

Gross profit for our International segment for the six months ended March 31, 2024 increased $42.5 million, or 39.9%, to $149.0 million as compared to $106.5 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.4% of revenue for the six months ended March 31, 2024 from 6.4% in the corresponding period last year.

The increases in gross profit and gross profit as a percentage of revenue for the three and six months ended March 31, 2024 were primarily due to an increase in revenue and reduced costs resulting from ongoing exiting of lower margin countries, ongoing investments in enterprise capability centers, shared service centers, and delivery efficiencies.

AECOM Capital

Three Months Ended

Six Months Ended

($ in millions)

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General and administrative expenses

Equity in earnings of joint ventures for the three months ended December 31, 2023 decreased $42.5 million, or 758.9%, to $(36.9) million compared to $5.6 million for the corresponding period last year.

The decrease was primarily due to impairment losses recognized in the first quarter of fiscal 2024.

* Not Meaningful

Equity in earnings of joint ventures for the three months ended March 31, 2024 increased $12.5 million, or 446.4%, to $9.7 million compared to a loss of $2.8 million for the corresponding period last year.

The increase in equity earnings was primarily due to a favorable close out of an investment.

Equity in earnings of joint ventures for the six months ended March 31, 2024 decreased $30.0 million, or 1,071.4%, to a loss of $27.2 million compared to earnings of $2.8 million for the corresponding period last year.

The change in equity of earnings in joint ventures for the six months ended March 31, 2024 was primarily due to impairment losses recognized in the first quarter of fiscal 2024.

The increases of $6.8 million and $6.5 million in general and administrative expenses for the three and six months ended March 31, 2024, respectively, compared to the corresponding period last year was due to nonrecurring expenses related to the transition of the AECOM Capital team and realization of strategic options around the AECOM Capital business.

We experience seasonal trends in our business.

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subsidiaries because such basis differences are able to and intended to be reinvested indefinitely.

At December 31, 2023, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax.

At March 31, 2024, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax.

Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

Based on the available sources of cash flows discussed above, we anticipate we will continue to have the ability to permanently reinvest these remaining amounts.

At December 31, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,193.3 million, a decrease of $68.9 million, or 5.5%, from $1,262.2 million at September 30, 2023.

At March 31, 2024, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,189.1 million, a decrease of $73.1 million, or 5.8%, from $1,262.2 million at September 30, 2023.

The decrease in cash and cash equivalents was primarily attributable to $113.1 million of cash used to repurchase common stock, of which $90.8 million was related to repurchases under the existing Board repurchase authorization.

Net cash provided by operating activities was $143.1 million for the three months ended December 31, 2023 as compared to $120.0 million for the three months ended December 31, 2022.

The change was primarily attributable to an increase in net income of approximately $11.8 million and an increase in adjustments for non-cash items of approximately $31.9 million, offset by a decrease in cash provided by working capital of approximately $20.7 million.

The sale of trade receivables to financial institutions included in

operating cash flows increased $50.6 million during the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

Net cash provided by operating activities was $237.4 million for the six months ended March 31, 2024 as compared to $131.5 million for the six months ended March 31, 2023.

The change was primarily attributable to an increase in cash provided by working capital of approximately $81.2 million and an increase in adjustments for non-cash items of approximately $81.3 million, offset by a decrease in net income of approximately $56.6 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $49.2 million during the six months ended March 31, 2024 compared to the six months ended March 31, 2023.

We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us.

Net cash used in investing activities was $86.8 million for the three months ended December 31, 2023, as compared to $45.2 million for the three months ended December 31, 2022.

Net cash used in investing activities was $121.9 million for the six months ended March 31, 2024, as compared to $83.6 million for the six months ended March 31, 2023.

The change was primarily attributable to an increase in cash payments for capital expenditures of approximately $7.9 million and cash paid for a business acquisition, net of cash acquired of $18.7 million.

Net cash used in financing activities was $126.3 million for the three months ended December 31, 2023 as compared to $91.4 million for the three months ended December 31, 2022.

Net cash used in financing activities was $188.4 million for the six months ended March 31, 2024 as compared to $147.4 million for the six months ended March 31, 2023.

The change from prior year was primarily attributable to a $15.8 million increase in stock repurchases under our stock repurchase program and a $9.2 million increase in dividends paid.

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Working Capital

Working capital, or current assets less current liabilities, decreased $39.7 million, or 12.4%, to $279.5 million at December 31, 2023 from $319.2 million at September 30, 2023.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,986.3 million at December 31, 2023 from $2,880.8 million at September 30, 2023.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 67 days at December 31, 2023 compared to 65 days at September 30, 2023.

Working capital, or current assets less current liabilities, increased $42.5 million, or 13.3%, to $361.7 million at March 31, 2024 from $319.2 million at September 30, 2023.

Net accounts receivable and contract assets, net of contract liabilities, increased to $3,185.3 million at March 31, 2024 from $2,880.8 million at September 30, 2023.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 71 days at March 31, 2024 compared to 65 days at September 30, 2023.

In Note 4, Revenue Recognition, in the notes to our consolidated financial statements, a comparative analysis of the various components of accounts receivable is provided.

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Long-term debt

The following table presents, in millions, scheduled maturities of our debt as of December 31, 2023:

2024 (nine months remaining)

The following table presents, in millions, scheduled maturities of our debt as of March 31, 2024:

2024 (six months remaining)

Credit Agreement

On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (as amended, modified or otherwise supplemented, the “Credit Agreement”), pursuant to which we amended and restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto.

At the time of amendment, the Credit Agreement consisted of a $1,150,000,000 revolving credit facility (the “Revolving Credit Facility”) and a $246,968,737.50 term loan A facility (the “Term A Facility,” together with the Revolving Credit Facility, the “Credit Facilities”), each of which mature on February 8, 2026.

The outstanding loans under the Term A Facility were borrowed in U.S.

Loans under the Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, in U.S.

dollars or in certain foreign currencies.

The proceeds of the Revolving Credit Facility may be used from time to time for ongoing working capital and for other general corporate purposes.

The proceeds of the Revolving Credit Facility and the Term A Loan facility borrowed on February 8, 2021 were used to refinance the existing revolving credit facility and the existing term loan facility under the Original Credit Agreement and to pay related fees and expenses.

The Credit Agreement permits us to designate certain of our subsidiaries as additional co-borrowers from time to time.

Currently, there are no co-borrowers under the Credit Facilities.

On February 8, 2021, we entered into the 2021 Refinancing Amendment to Credit Agreement (as amended, modified or otherwise supplemented, the “Credit Agreement”), pursuant to which we amended and restated its Syndicated Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto.

At the time of amendment, the Credit Agreement consisted of a $1,150,000,000 revolving credit facility (the “Original Revolving Credit Facility”) and a $246,968,737.50 term loan A facility (the “Original Term A Facility,”), each of which would have matured on February 8, 2026.

The proceeds of the Original Revolving Credit Facility and the Original Term A Loan facility borrowed on February 8, 2021 were used to refinance the existing revolving credit facility and the existing term loan facility under the Original Credit Agreement and to pay related fees and expenses.

On April 13, 2021, we entered into Amendment No.

10 to the Credit Agreement, pursuant to which the lenders thereunder provided a secured term B credit facility (the “Term B Facility”) to the Company in an aggregate principal amount of $700,000,000.

The Term B Facility matures on April 13, 2028.

The proceeds of the Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

10 to Credit Agreement, pursuant to which the lenders thereunder provided us a secured term B credit facility (the “Original Term B Facility,” and together with the Original Term A Facility and Original Revolving Credit Facility, the “Original Credit Facilities”) in an aggregate principal amount of $700,000,000.

The Original Term B Facility would have matured on April 13, 2028.

The proceeds of the Original Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

On June 25, 2021, we entered into Amendment No.

11 to the Credit Agreement, pursuant to which lenders thereunder have provided us with an additional $215,000,000 in aggregate principal amount under the Term A Facility.

We used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.

On May 23, 2023, the Company entered into Amendment No.

12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of US Dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment.

On May 23, 2023, the Company entered into Amendment No.

13 to the Credit Agreement, pursuant to which the spread adjustments with respect to the Revolving Credit Facility and the Term A Facility were amended.

The applicable interest rate for loans under the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

The applicable interest rate for U.S.

Dollar-denominated loans under the Revolving Credit Facility and the Term A Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin,” and together with the SOFR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%.

The applicable interest rate for loans under the Revolving Credit Facility denominated in other currencies is calculated at a per annum rate equal to a customary floating reference rate for such currency specified in the Credit Agreement plus the SOFR Applicable Margin.

The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO 2 emissions and the percentage of employees who identify as women (each, a “Sustainability Metric”).

The Applicable Margins for the Term A Facility and the Revolving Credit Facility and the commitment fees for the Revolving Credit Facility will be adjusted on an annual basis based on our achievement of preset thresholds for each Sustainability Metric.

Some of our material subsidiaries (the “Guarantors”) have guaranteed the obligations of the borrowers under the Credit Agreement, subject to certain exceptions.

11 to Credit Agreement, pursuant to which lenders thereunder provided us an additional $215,000,000 in aggregate principal amount under the Original Term A Facility.

We used the net proceeds from the increase in the Original Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.

On May 23, 2023, we entered into Amendment No.

12 to Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of U.S.

dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment.

On May 23, 2023, we entered into Amendment No.

13 to Credit Agreement, pursuant to which the spread adjustments with respect to the Original Revolving Credit Facility and the Original Term A Facility were amended.

On April 19, 2024, we entered into Amendment No.

14 to Syndicated Facility Agreement, pursuant to which we obtained a new $1,500,000,000 revolving credit facility (the “New Revolving Credit Facility”), a new $750,000,000 term loan A facility (the “New Term A Facility” and, together with the New Revolving Credit Facility, the “New Pro Rata Facilities”) and a new $700,000,000 term loan B facility (the “New Term B Facility” and, together with the New Pro Rata Facilities, the “New Credit Facilities”).

The New Revolving Credit Facility and the New Term A Facility mature on April 19, 2029.

The New Term B Facility matures on April 19, 2031.

The New Term A Facility and the New Term B Facility were borrowed in full on April 19, 2024 in U.S.

Loans under the New Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, in U.S.

dollars or in certain foreign currencies.

The New Credit Facilities replace in full the Original Revolving Credit Facility, the Original Term A Facility and the Original Term B Facility, and borrowings under the New Credit Facilities were used to refinance in full the Original Credit Facilities and for general corporate purposes.

The Credit Agreement permits us to designate certain of our subsidiaries as additional co-borrowers from time to time.

Currently, there are no co-borrowers under the New Credit Facilities.

Borrowings under (a) the New Revolving Credit Facility (in U.S.

dollars) and the New Term A Facility will bear interest at a rate per annum equal to, at our option, (i) a Term SOFR rate (with a 0% floor and SOFR adjustment of 0.10%) or (ii) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.25% in the case of the Term SOFR rate and 0.25% in the case of the base rate, and (b) the New Revolving Credit Facility in currencies other U.S.

dollars will bear interest at a rate per annum equal to the applicable reference rate for such currency (including any related adjustments), plus an applicable margin of 1.25%.

The applicable margin is subject, in each case, to adjustment based on our consolidated leverage ratio from time to time.

Borrowings under the New Term B Facility will bear interest at a rate per annum equal to, at our option, (a) a Term SOFR rate (with a 0% floor and a SOFR adjustment of 0%) or (b) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.875% in the case of the Term SOFR rate and 0.875% in the case of the base rate.

Certain of our material subsidiaries (the “Guarantors”) have guaranteed our obligations of the borrowers under the Credit Agreement, subject to certain exceptions.

The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and the Guarantors’ assets, subject to certain exceptions.

The Credit Agreement contains customary negative covenants that include, among other things, limitations on our and certain of our subsidiaries’ ability, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of our business, consummate mergers, consolidations and the sale of all or substantially all of our respective assets, taken as a whole, and transact with affiliates.

We are also required to maintain a consolidated interest coverage ratio of at least 3.00 to 1.00 and a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”).

The Financial Covenants do not apply to the Term B Facility.

Our consolidated leverage ratio was 2.00 to 1.00 at December 31, 2023.

As of December 31, 2023, we were in compliance with the covenants of the Credit Agreement.

The Credit Agreement contains customary negative covenants that include, among other things, limitations on our ability and certain of our subsidiaries, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of their business, consummate mergers, consolidations and the sale of all or substantially all of our respective assets and transact with affiliates.

We are also required to maintain a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”).

The Financial Covenants do not apply to the New Term B Facility.

As of March 31, 2024, we were in compliance with the covenants of the Credit Agreement.

The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records.

The Credit Agreement contains customary events of default, including, among other things, nonpayment of principal, interest or fees, cross-defaults to other debt, inaccuracies of representations and warranties, failure to perform covenants, events of bankruptcy and insolvency, change of control and unsatisfied judgments, subject in certain cases to notice and cure periods and other exceptions.

At December 31, 2023 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility.

As of December 31, 2023 and September 30, 2023, we had $1,145.6 million and $1,145.6 million, respectively, available under our revolving credit facility.

At March 31, 2024 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under the our Original Revolving Credit Facility.

As of March 31, 2024 and September 30, 2023, we had $1,145.6 million and $1,145.6 million, respectively, available under our Original Revolving Credit Facility.

2027 Senior Notes

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On June 30, 2017, we completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees.

As of December 31, 2023, the estimated fair value of the 2027 Senior Notes was approximately $979.8 million.

The fair value of the 2027 Senior Notes as of December 31, 2023 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

As of March 31, 2024, the estimated fair value of the 2027 Senior Notes was approximately $977.3 million.

The fair value of the 2027 Senior Notes as of March 31, 2024 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum.

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The indenture also contains customary negative covenants.

We were in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2023.

We were in compliance with the covenants relating to the 2027 Senior Notes as of March 31, 2024.

Other Debt and Other Items

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The unsecured credit facilities are primarily used for standby letters of credit issued in connection with general and professional liability insurance programs and for contract performance guarantees.

At December 31, 2023 and September 30, 2023, these outstanding standby letters of credit totaled $887.6 million and $878.9 million, respectively.

As of December 31, 2023, we had $406.1 million available under these unsecured credit facilities.

At March 31, 2024 and September 30, 2023, these outstanding standby letters of credit totaled $895.3 million and $878.9 million, respectively.

As of March 31, 2024, we had $418.9 million available under these unsecured credit facilities.

Effective Interest Rate

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and interest rate cap agreements during the three months ended December 31, 2023 and 2022 was 5.4% and 5.1%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2023 and 2022 of $1.2 million and $1.2 million, respectively.

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and interest rate cap agreements during the six months ended March 31, 2024 and 2023 was 5.5% and 5.2%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and six months ended March 31, 2024 and 2022 of $1.2 million and $2.4 million, respectively, and for the three and six months ended March 31, 2023 of $1.2 million and $2.4 million, respectively.

Other Commitments

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However, if we acquire additional businesses in the future or if we embark on other capital-intensive initiatives, additional working capital may be required.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of December 31, 2023, there was approximately $891.9 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of March 31, 2024, there was approximately $899.7 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

For those projects for which we have issued a performance guarantee, if the project subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.

We recognized on our balance sheet the funded status of our pension benefit plans, measured as the difference between the fair value of plan assets and the projected benefit obligation.

At December 31, 2023, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $157.9 million.

The total amounts of employer contributions paid for the three months ended December 31, 2023 were $2.3 million for U.S.

At March 31, 2024, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $146.1 million.

The total amounts of employer contributions paid for the six months ended March 31, 2024 were $4.4 million for U.S.

plans and $13.1 million for non-U.S.

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Refer to our Annual Report on Form 10-K for the year ended September 30, 2023 for a discussion of our contractual obligations.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the three months ended December 31, 2023.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the six months ended March 31, 2024.

Condensed Combined Financial Information

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All intercompany balances and transactions are eliminated in the presentation of the combined financial statements.

Amounts provided do not represent our total consolidated amounts as of December 31, 2023 and September 30, 2023, and for the three months ended December 31, 2023.

Amounts provided do not represent our total consolidated amounts as of March 31, 2024 and September 30, 2023, and for the six months ended March 31, 2024.

Condensed Combined Balance Sheets

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(unaudited - in millions)

December 31, 2023

March 31, 2024

September 30, 2023

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(unaudited - in millions)

For the three months ended

December 31, 2023

For the six months ended

March 31, 2024

Cost of revenue

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If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected.

The Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K, and “Critical Accounting Estimates” in Part II, Item 7 of the 2023 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements.

The Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 Form 10-K”), and “Critical Accounting Estimates” in Part II, Item 7 of the 2023 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements.

We have not materially changed our estimation methodology since the 2023 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis